Why Might Your Self-Assessment Tax Return Be Investigated?

Even if you have not made any mistakes in your tax return and have nothing to hide, the prospect of an HMRC investigation can be worrying. So, what triggers an HMRC investigation, and what does HMRC do?

What is an HMRC Tax Investigation?

To ensure that you are paying the correct amount of tax, HMRC can investigate your financial records and tax affairs at any time. HMRC will contact you by letter or phone to explain what they intend to investigate. If your tax returns are prepared by an accountant, HMRC will contact them first (they must inform you immediately).

Besides Self-Assessment tax returns, HMRC also investigates corporation tax returns, employer PAYE records, VAT returns, and other tax matters. HMRC may conduct a full investigation (examining all financial and tax records) or focus on a specific aspect (such as a recent Self-Assessment return). While less common, HMRC also conducts random investigations, meaning any taxpayer or business could be subject to an audit, regardless of their records’ quality.

What Triggers an HMRC Investigation?

Your filed tax return is cross-checked with HMRC’s existing data on you or your business. Any significant discrepancies can raise concerns and trigger an investigation. HMRC’s advanced data analysis tools automatically detect unusual patterns.

For example, if your reported business expenses suddenly increase or your turnover drops significantly, reducing your tax liabilities, HMRC may want to investigate the reason. It is important to be careful when filling out your Self-Assessment tax return, as even innocent mistakes can lead to an investigation. Claiming ignorance is unlikely to prevent a penalty.

HMRC investigations are more common in industries where cash-in-hand transactions are frequent. If the income and expenses reported in your tax return do not match industry standards, HMRC may become suspicious. Repeated late filings of Self-Assessment returns can also trigger an investigation, as well as tips from third parties.

What Happens If HMRC Starts an Investigation?

HMRC may request a home visit, a meeting at your business premises (if applicable), or at your accountant’s office. Alternatively, you might be asked to visit your nearest tax office (you can bring an accountant or legal advisor).

HMRC can also request third-party information and search premises if necessary. The more serious the issue, the more thorough the investigation. Errors in tax returns may cause HMRC to review previous years’ data, which could lead to additional fines if other issues are found.

You should fully cooperate with HMRC’s investigation. Ignoring notices or refusing a visit will worsen the situation. Once the investigation is complete, HMRC will send you a summary of their findings, and you have the right to appeal if you disagree with the decision.

Consequences of an HMRC Investigation

When deciding on a penalty, HMRC considers:

• The nature of the error,
• Its impact on your tax obligations,
• Whether your actions were intentional or unintentional,
• Your level of cooperation.

The harshest penalties apply to deliberate concealment of income or fraudulent overstatement of expenses to reduce tax liability. Fines can be up to 100% of the unpaid tax, and you will still need to pay the correct tax amount.

If the mistake was honest and minor, the outcome may be more lenient, especially if you voluntarily report it to HMRC. Some investigations result in no additional tax owed, though business owners may still lose time and resources.

How to Reduce the Risk of an HMRC Investigation

Use reliable accounting and filing software to prevent errors.
 Take your time when filling out your Self-Assessment tax return—rushing increases the risk of mistakes.
 Ensure all data is accurate and provide all required information.
 Do not claim ineligible expenses—check tax-deductible expenses if you are self-employed.
 Never conceal taxable income or lie about your expenses.
 If your income or expenses significantly change, explain why in your tax return.
 Seek help from a professional accountant to review or prepare your Self-Assessment return to prevent errors.
 Keep receipts and invoices for all business purchases.
 File your Self-Assessment tax return on time—late filings increase the chance of an investigation.

What UK Budget Changes Might Affect You?

Minimum Wage Increase

From April 2025, the minimum wage for workers over 21 years old will rise to £12.21 per hour, while for those under 20, it will be £10 per hour.

However, the tax-free personal allowance (£12,570) will remain unchanged until 2028.

(This means that as wages increase, we will pay more tax.)

Buying Property

The Stamp Duty threshold for property purchases will decrease from £250,000 to £125,000, and the additional tax on second homes will increase from 3% to 5%.

(This means the amount of tax when buying a property will increase.)

Selling Property/Shares

Capital Gains Tax will increase from 10% to 18% (for higher-rate taxpayers, from 20% to 24%). This applies to gains from the sale of assets such as shares or second homes.

Abolition of Non-Domiciled Tax Status (Non-Dom)

From 6 April 2025, foreigners living in the UK but holding tax residency abroad will no longer be able to avoid paying UK tax on their overseas income and capital gains.

Pensions & Social Benefits

State pensions will increase by 4.1% next year. At the same time, the maximum earnings threshold for those receiving in-work benefits will increase to £195 per week.

Increase in Employer NI Contributions

From April 2025, businesses will be required to pay 15% National Insurance (NI) on salaries above £5,000(previously 13.8% on salaries above £9,100), increasing employer costs.

(This could lead to higher prices for goods and services.)

School Fines Increased from August 2024!

The new guidance “Working Together to Improve School Attendance” emphasizes the principle of “Support First” and recognizes that “barriers to accessing education are extensive and complex, both within and beyond school gates, and are often specific to individual pupils and families… [It is very] important that pupils gain the maximum benefit from their school experience, including their academic performance, well-being, and broader life opportunities.”

If you are concerned about your child’s attendance or punctuality, please contact your child’s personal tutor or year coordinator as soon as possible so that barriers to attendance can be understood and appropriate support can be provided to assist you, your family, and your child in preventing further absences.

Medical Evidence

In most cases, a parent’s notification that their child is too ill to attend school will be clear and can be accepted without question or concern. Only in cases where the academy has genuine and reasonable doubts about the authenticity of the illness will medical evidence be requested to confirm the absence. When attendance is a concern, evidence may also be requested to authorize an absence. Please cooperate with our staff when they request any evidence.

Formalization and Strengthening of Support

If voluntary support is ineffective and/or has not been engaged, we will work with partners, including local authorities, to formalize and strengthen support.

As part of the measures introduced, if a student accumulates 10 absence sessions within a 10-week period, the parent(s)/guardian(s) of the student may receive an “Improvement Notice”, sent via email or letter. Each day of absence is recorded as two sessions (morning and afternoon).

Unauthorized Absence Includes:

• Unauthorized absence (where there are no reasonable circumstances for the absence, code O)
• Lateness after registration closes (code U)
• A combination of these or unauthorized holidays taken during term time (unauthorized holiday – code G)

These 10 weeks may span different terms and even different educational settings, such as transitions, school changes during the year, and alternative provisions. For example, if your child misses 3 school days due to a holiday in September (6 sessions) and is late after registration closes 4 times (4 sessions) between September and October, you may receive an “Improvement Notice.”

The “Improvement Notice” will outline expectations for improving attendance, such as “no further unauthorized absences.” If these expectations are not met during the improvement period, the school may request a Penalty Notice, issued by the Local Authority to each parent/guardian responsible for the child. Any absence related to holidays totaling 10 sessions within 10 weeks may result in a Penalty Notice. In such cases, no “Improvement Notice” will be issued beforehand.

Penalty Notice Amounts Increased in August 2024

A maximum of two Penalty Notices can be issued within a three-year period:

• First Offense – Upon the first issuance of a Penalty Notice, the amount will be £80 per parent, per child, payable within 21 days. It increases to £160 per parent, per child, if paid after 21 days, up to 28 days. Any unpaid fine may be referred to the Magistrates’ Court.
• Second Offense (within 3 years) – Upon the second issuance of a Penalty Notice, the amount will be £160 per parent, per child, payable within 28 days. Any unpaid fine may be referred to the Magistrates’ Court.
• Third and Further Offenses (within 3 years) – Upon committing a third offense, no Penalty Notice will be issued, and the case may be referred directly to the Magistrates’ Court under Section 444 of the Education Act (1996) or other applicable legal measures. The Magistrates’ Court may impose fines of up to £2,500 per parent, per child.

Parents with parental responsibility and adults living with the child, including step-parents who have day-to-day care, may be fined. This applies to each absent child. For example, if two adults take two children out of school, the total fine would be £640 (reduced to £320 for the first offense paid within 21 days).

If a Penalty Notice is not paid within the deadline stated in the parent’s letter, the Local Authority may proceed with court action.

We acknowledge that these Penalty Notices may be unpopular among families, but it is essential to inform you of these changes promptly.

National School Leaders’ Role:

• Headteachers do not have the authority to approve term-time holidays, except in truly exceptional circumstances, and must review each leave request individually before making a decision. The law explicitly requires headteachers to enforce these penalties strictly.
• The new policy also states that all schools must consider issuing Penalty Notices if the criteria are met. This is a nationwide statutory process and will be followed by all state-funded schools in England.

The primary aim of these measures is to ensure that children do not miss out on their education.

Every lesson is a crucial part of your child’s learning journey, and frequent absences can significantly hinder their progress.

Thank you for your ongoing cooperation in supporting your child’s education.

Transition from BRP to eVisa – Until December 31!

Dear Ukrainians living in the UK with a BRP,
Your BRP card expires on December 31, 2024.
After this date, you will not be able to enter the UK without an electronic visa – eVisa.

The transition to eVisa has already begun, and we are ready to assist you every step of the way!

On the official GOV.UK website, as well as in official emails that some of us have already received, it is recommended to take action now if you do not yet have an eVisa.

Important points to note:

• eVisa is not an application for an extension of your permission to stay in the UK.
• You should keep your BRP card even after it expires, as it may be needed when applying for an extension.
• If you already have an eVisa, make sure to update your passport and contact details in your account if they change. Otherwise, you may face issues when crossing the border.

If you have any questions or need assistance with your eVisa application, feel free to contact us for a consultation.